Banking, without becoming a bank

Banking services like debit cards and savings accounts can be a valuable profit center and great way to create consumer engagement. Unfortunately, banking is hard. Or, rather, being a bank is hard.

The regulatory and operational lift required to become a fully chartered, FDIC-insured bank is heavy, and maintaining compliance can be an unforgiving, ongoing task. So, until very recently, a lot of banking products have been off the table to non-banks.

Fintech has the development and UI chops to offer exceptional banking service experiences, but they’ve been missing the regulatory piece of the puzzle—as well as a few others.

Here’s what it takes to offer banking products today:

Banking Partnership

By joining forces with a financial institution (FI), fintechs—or other development-capable organizations—gain access to compliance and security infrastructure. With a little help, you can potentially issue compliant, insured accounts, provide white-labeled debit cards, initiate ACH transfers, and even provide cutting edge bill pay services. With a quality FI partnership, you will not need to jump though all of the regulatory hoops required to become a fully chartered bank.

System of Record (Core Processor)

Once you forge an alliance with your FI partner(s), you’ll need a way to manage the customers, accounts and transactions your new products will bring in. This should include a shared technology stack that supports all parties involved—a solution to enable the front-end development of the products you’ll offer while serving as a compliant system of record for the partner bank.

Legacy banking technology is designed for full-service banking and isn’t particularly agile. It is missing a critical link: the ability for fintech to develop against the core. Suffice it to say that traditional banking technology is not built for bank/fintech partnership.

But, a handful of technology partners have worked out this problem. They offer systems that can:

Separate the fintech line-of-business from the full-service operations of the bank

Serve as a system of record for all of the data needed to onboard, maintain, and manage customers’ accounts, balances, and transactions

Issue VISA debit cards and manage the debit processing seamlessly

Generate the necessary documents, statements, and reports required for regulatory and customer service purposes, as well as export data as necessary

Ability to Scale

All businesses that thrive are subject to growing pains but partnering with an FI makes scaling exceptionally complex—unless you have a way to manage it.

Without getting too far into the regulatory weeds, there’s a deposits “sweet spot” to be maintained when partnering with FIs. Also, banks with more than $10 billion in assets earn a smaller percentage of interchange revenue from debit/credit card usage. So, while you’re champing at the bit for growth, too much of a good thing can destabilize your FI partner’s balance sheet.

To avoid this complication, growth should be managed by fractionalizing deposits across a network of insured banks. The right technology, optimized allocation and a scalable network of insured deposits is key in managing this distribution—but it’s doable. And, if done right, is profitable and exceptionally scalable as well. This can also make it possible to extend FDIC insurance above the standard $250,000 limitations.

A new model for banking services

By successfully pulling these three elements together, Banking as a Service (BaaS) platforms like Cambr allow fintechs to offer high-yield savings accounts, checking accounts, debit cards, and other financial products that have traditionally only been available through banks. It’s a new model for generating and supporting financial applications – one that is showing a great deal of potential for changing the world of financial products.

Want to learn more?

Cambr brings the above elements together in a turnkey package, to save fintechs the trouble of sourcing these components themselves and to make building, maintaining, and evolving these products easier than ever before. With leading functionality, optimal design and highly stable and scalable components, Cambr provides companies from fast growing start-ups to large enterprises the necessary banking APIs to build rapidly, operate seamlessly and scale profitably.

Contact us today to learn how you can use Cambr to build the next generation of banking.